Performance Highlights

Transcription

1 Performance Highlights Nikon Corporation and Consolidated Subsidiaries Years ended March 31 Note: International Financial Reporting Standards (IFRS) have been adopted to prepare the consolidated financial statements of Nikon Corporation and its consolidated subsidiaries since the year ended March 31, 217, whereas Japanese generally accepted accounting principles (Japanese GAAP) were previously adopted until the year ended March 31, 216. Japanese GAAP Profit or loss (for the year): Net sales 879, , , ,652 1,1,494 98,556 Cost of sales (561,642) (552,49) (575,536) (567,) (663,59) (63,568) Selling, general and administrative expenses (269,892) (246,944) (257,924) (271,571) (295,983) (287,46) Operating income (loss) 48,185 (13,854) 54,53 8,81 51,2 62,942 Income (loss) before income taxes 39,18 (17,672) 46,56 86,168 61,857 74,692 Net income (loss) attributable to owners of the parent 28,56 (12,615) 27,313 59,36 42,459 46,825 Financial position (fiscal year-end): Total assets 749,85 74, ,99 86,23 864, ,515 Total equity 379,87 372,7 389,22 433,617 49, ,813 Interest-bearing debt 114,94 12,388 87,476 86,367 85, ,132 Cash flows (for the year): Net cash provided by operating activities 1,112 13, ,614 15,73 51, ,185 Net cash used in investing activities (44,518) (47,18) (23,589) (49,145) (65,11) (43,194) Free cash flow (34,46) 56,389 1,24 (34,71) (13,219) 7,991 Net cash (used in) provided by financing activities 5,774 (31,477) (2,122) (15,15) (18,198) 31,869 Per share of common stock* 1 (yen): Basic net income (loss) 7.76 (31.82) Diluted net income Cash dividends paid Financial indicators: Equity ratio (%) Debt equity (D/E) ratio (times) Return on equity (ROE)* 2 (%) 7.3 (3.4) Return on assets (ROA)* 2 (%) 3.6 (1.7) Capital expenditures 43,467 37,525 29,776 55,915 6,158 45,472 Depreciation and amortization 32,91 35,956 34,34 32,57 36,226 42,477 R&D costs 61,489 6,261 6,767 68,71 76,497 74,552 Non-financial data: Number of consolidated subsidiaries Number of employees 23,759 26,125 24,49 24,348 24,47 23,859 Ratio of female employees* 7 (%) Ratio of overseas employees (%) Environment-related data: CO2 emissions from Nikon Group (thousand tons of CO2)* Water use by Nikon Group (thousand m 3 ) 2,819 3,7 3,867 3,82 3,936 Note: Environment-related data includes figures for the Company, 15 domestic Group companies, and eight overseas Group manufacturing companies. For more details, please refer to the Boundary of the Nikon Group s Environmental Management Systems and Environmental Performance Data section on page 44 of Sustainability Report 218. : Quantitative data covered by the independent practitioner s assurance (See page 19 for details.) 24 NIKON REPORT 218

2 Financial Information Sustainability Reports Millions of yen * 4 857, ,388 (532,383) (56,773) (281,987) (28,917) 43,412 31,699 35,153 28,579 18,364 18,254 IFRS Thousands of U.S. Millions of yen dollars* Profit or loss (for the year): Revenue 841,4 749, ,78 $ 6,749,63 Cost of sales (522,232) (443,153) (44,17) (3,84,311) Selling, general and administrative expenses (276,988) (247,548) (248,683) (2,34,768) Other income (expenses) (6,554) (57,798) (7,988) (75,191) Operating profit 35, , ,334 Profit before income taxes 39,546 3,68 56, ,528 Profit attributable to owners of the parent 29,947 3,967 34, , , , ,21 528,28 115, ,772 71,39 15,215 (24,945) (8,881) 46,364 24,334 (24,955) (18,174) Financial position (fiscal year-end): Total assets 982,564 1,18,351 1,98,343 1,338,319 Total equity 537,78 538,15 573,541 5,398,54 Interest-bearing debt 112, , ,314 1,27,773 Cash flows (for the year): Net cash provided by operating activities 17,512 97, ,82 1,177,357 Net cash used in investing activities (83,178) (4,693) (34,88) (327,632) Free cash flow 24,334 56,649 9, ,724 Net cash (used in) provided by financing activities (18,174) 15,522 (19,97) (187,973) BUSINESS PERFORMANCE Per share of common stock* 1 (yen and U.S. dollars): Basic earnings Diluted earnings Cash dividends paid Financial indicators: Ratio of equity attributable to owners of the parent to total assets (%) D/E ratio (times) ROE* 2 (%) ROA* 2 (%) ,55 34,498 38,458 37,739 66,73 66,781 Capital expenditures 34,498 32,234 33, ,6 Depreciation and amortization 38,811 33,972 31,76 298,438 R&D expenditures* 6 66,781 63,636 6,74 571, ,415 25, *1 Per share of common stock information is calculated based on the weighted-average number of ordinary shares outstanding during the year. *2 Throughout this report, ROE is computed by dividing profit (loss) attributable to owners of the parent by the average of equity attributable to owners of the parent at the start and end of the given fiscal year, and ROA is computed by dividing profit (loss) attributable to owners of the parent by the average of total assets at the start and end of the given fiscal year. *3 Values are the aggregated results of CO2 emissions from energy use. The following values were used for CO2 conversion factors. Electricity In Japan: The CO2 conversion factors without adjustment for each electric power utility noted in the List of Emissions Factors by Electric Power Utility specified in the Act on Promotion of Global Warming Countermeasures were used. Outside Japan: The International Energy Agency (IEA) factors were used. The FY215 IEA factors were used for the fiscal years ended March 31, 217 and 218; the Thailand factors were used for Laos. City gas The gas company eigenvalues noted in the guidance document for Periodic Report pursuant to the Act on the Rational Use of Energy (Energy Conservation Act) were multiplied by the values given in Appended Table 2 of Non-financial data: Number of consolidated subsidiaries Number of employees 25,729 25,31 21,29 Ratio of female employees* 7 (%) Ratio of overseas employees (%) the List of Calculation Methods and Emissions Factors for Calculation, Reporting and Announcement Systems specified in the Act on Promotion of Global Warming Countermeasures and then multiplied by 44/12. Heat and other fuels The values noted in the List of Calculation Methods and Emissions Factors for Calculation, Reporting and Announcement Systems specified in the Act on Promotion of Global Warming Countermeasures were used. *4 In the Precision Equipment Business, revenue from sales transactions of FPD lithography systems for overseas customers had previously been recognized on either the shipping dates or the time of delivery to the locations designated by customers. Since the fiscal year ended March 31, 217, however, the accounting policy has been changed to recognize revenue at the point when installation is completed. Accordingly, consolidated financial figures for the fiscal year ended March 31, 216, were adjusted retrospectively in accordance with the change in the accounting policy. *5 U.S. dollar figures are translated for reference only at = $1, the exchange rate on March 31, 218. *6 R&D expenditures include the portion of development costs that are capitalized as intangible assets. *7 The ratio of female employees is calculated based on full-time employees and non-regular staff of Nikon Group companies. Employees seconded to affiliates are counted among the employees of the company from which they have been seconded. NIKON REPORT

3 Performance Highlights Nikon Corporation and Consolidated Subsidiaries Years ended March 31 Note: Figures for the year ended March 31, 215, and prior are prepared in accordance with Japanese GAAP. Figures for the fiscal year ended March 31, 216, and thereafter are prepared in accordance with IFRS. Growth Potential 1 Revenue* 2 Operating Profit (Loss) / Operating Margin Billions of yen 1, , * Net sales under Japanese GAAP Billions of yen % (1.8).1 2 (13.8) Operating profit (loss) (left scale) Operating margin (%) (right scale) 3 Profitability Profit (Loss) Attributable to Owners of the Parent* / ROE 4 Cash Flows Billions of yen % (12.6) (3.4) Profit (loss) attributable to owners of the parent* (left scale) ROE (%) (right scale) * Net income (loss) attributable to owners of the parent under Japanese GAAP Billions of yen (13.2) (23.5) (34.) (24.9) (47.1) (34.8) (49.1) (43.1) (4.6) (65.1) (83.1) Net cash provided by operating activities Net cash used in investing activities Free cash flow Efficiency 5 Inventories / Inventory Turnover Period 6 Total Assets / Asset Turnover Billions of yen Months Billions of yen 1, ,98.3 1, Times Inventories (left scale) Inventory turnover period (months) (right scale) Total assets (left scale) Asset turnover (times) (right scale) External Ratings Euronext Vigeo Eiris Index World 12 Snam Sustainability Index FTSE4 Good Index Series FTSE Blossom Japan Index Morningstar Socially Responsible Investment Index (MS-SRI) 26 NIKON REPORT 218

4 7 Safety Total Equity / Ratio of Equity Attributable to Owners of the Parent to Total Assets* Billions of yen % Total equity (left scale) Ratio of equity attributable to owners of the parent to total assets* (%) (right scale) * Equity ratio under Japanese GAAP 8 Interest-Bearing Debt / D/E Ratio Billions of yen Interest-bearing debt (left scale) D/E ratio (times) (right scale) Times Growth Investments Capital Expenditures / Depreciation and Amortization Billions of yen Capital expenditures Depreciation and amortization Shareholder Returns 1 R&D Expenditures* 1 / Ratio of R&D Expenditures to Revenue* 2 Billions of yen % R&D expenditures* 1 (left scale) Ratio of R&D expenditures to revenue* 2 (%) (right scale) *1 R&D costs under Japanese GAAP *2 Ratio of R&D costs to net sales under Japanese GAAP 3 BUSINESS PERFORMANCE 11 Basic Earnings (Loss) per Share* 1 / Equity Attributable to Owners of the Parent per Share* 2 Yen , ,234 1, (31) , , ,356 Yen 1,445 1,6 87 1, Cash Dividends per Share / Dividend Payout Ratio Yen % Basic earnings (loss) per share* 1 (left scale) Equity attributable to owners of the parent per share* 2 (right scale) *1 Basic net income (loss) per share under Japanese GAAP *2 Net assets per share under Japanese GAAP Cash dividends per share (left scale) Dividend payout ratio (%) (right scale) ECPI Ethical Index Global MSCI ESG Leaders Indexes* MSCI Japan ESG Select Leaders Index* MSCI Japan Empowering Women Index* * The inclusion of Nikon Corporation in any MSCI index, and the use of MSCI logos, trademarks, service marks or index names herein, do not constitute a sponsorship, endorsements or promotion of Nikon Corporation by MSCI or any of its affiliates. The MSCI indexes are the exclusive property of MSCI. MSCI and the MSCI index names and logos are trademarks or service marks of MSCI or its affiliates. NIKON REPORT

5 Nikon s Business Structure Leveraging its core opto-electronics and precision technologies, Nikon has developed a varied business portfolio. This portfolio includes the Imaging Products Business, which supplies digital cameras and interchangeable lenses; the Precision Equipment Business, which offers FPD lithography systems and semiconductor lithography systems; the Healthcare Business, which provides biological microscopes and ultra-wide field retinal imaging devices; and the Industrial Metrology Business, which handles industrial microscopes and metrology systems. IMAGING PRODUCTS BUSINESS PRECISION EQUIPMENT BUSINESS Revenue by Business Segment (Year ended March 31, 218) Industrial Metrology and Others 1.2% Healthcare Business 7.9% Precision Equipment Business 717. billion Imaging Products Business 5.3% HEALTHCARE BUSINESS 31.6% Revenue by Region (Year ended March 31, 218) Others Japan 21.1% 14.3% China 717. billion United States INDUSTRIAL METROLOGY AND OTHERS 22.7% 24.8% Europe 17.1% 28 NIKON REPORT 218

6 Imaging Business Unit Development, manufacturing, sales, and service of digital cameras interchangeable lens type, interchangeable lenses, compact digital cameras, and other products CHARACTERISTICS Nikon develops high-performance products by combining the latest digital image processing and network technologies with the camera technology cultivated from 1948, with the launch of the small-sized Nikon Model I camera. Throughout the world, Nikon possesses high brand power. Underpinned by its accumulated experience and technologies, Nikon works to offer a range of products and services that brings to fruition new ways to enjoy images and pursues the unlimited possibilities of photos and video. FPD Lithography Business Unit Development, manufacturing, sales, and service of FPD lithography systems for the production of LCD and organic light-emitting diode (OLED) panels CHARACTERISTICS Nikon possesses a high share of the market for FPD lithography systems used in the manufacture of small and medium-sized highdefinition LCD panels for smartphones and tablet computers, of large, high-definition LCD panels for TVs, and of organic light-emitting diode (OLED) panels. Nikon s proprietary multi-lens systems offer overwhelming advantages for larger and higher-definition panels. Semiconductor Lithography Business Unit Development, manufacturing, sales, and service of semiconductor lithography systems for the production of semiconductors used primarily in electronics CHARACTERISTICS Nikon pursues the miniaturization of circuit patterns critical to the enhanced performance and increased integration of semiconductors. The Company possesses immersion exposure technologies that fill the space between the projection lens and the wafer with purified water to achieve high resolution. In addition, Nikon has released Litho Booster, which is equipped with an alignment station that contributes to increased exposure accuracy through high-speed, high-precision wafer measurement. BUSINESS PERFORMANCE Healthcare Business Unit Development, manufacturing, sales, and service of biological microscopes, cell culture observation systems, ultra-wide field retinal imaging devices, etc., and cell quality evaluation and contract manufacturing of cells in the regenerative medicine field CHARACTERISTICS By means of its super resolution microscopes, which achieve resolution exceeding the limits of optical diffraction, Nikon opens up new possibilities in live cell imaging. Meanwhile, we offer the ultra-wide field retinal imaging devices developed and manufactured at subsidiary Optos Plc and perform cell quality evaluation and contract manufacturing of cells in the regenerative medicine field. By going even further to develop inspection and diagnosis solutions utilizing machine learning in the retinal imaging field, we help improve people s quality of life. Industrial Metrology Business Unit Development, manufacturing, sales, and service of industrial microscopes, measuring instruments, X-ray / CT inspection systems, metrology systems, and surveying instruments CHARACTERISTICS Nikon provides quality-control solutions required for sophisticated manufacturing processes. Nikon s industrial microscopes, non-contact 3D metrology systems, and X-ray / CT inspection systems, that enable non-destructive inspection, are used in industries such as automotive, aerospace, and electronic components. Meanwhile, joint-venture company Nikon-Trimble Co., Ltd., contributes to high-precision surveying and improved productivity in the construction and surveying fields. Others CHARACTERISTICS In addition to the Customized Products Business, which handles spacerelated products, and the Glass Business, which handles FPD photomask substrates, etc., as well as the Encoders Business and the Ophthalmic Lenses Business, Other Businesses contribute to the development of science and technology in addition to industry and society. Customized Products Business Glass Business Encoder Business Ophthalmic Lenses Business NIKON REPORT

7 Overview of Divisions and Business Units Corporate Strategy Division Masashi Oka Senior Executive Vice President, CFO Representative Director Officer in charge of Corporate Strategy Division and General Manager of the division Status of Corporate Strategies as of the Fiscal Year Ended March 31, 218 We believe we made headway by steadily executing measures set forth in our Restructuring Plan, successfully accomplishing the pressing task of returning the Semiconductor Lithography Business to positive performance and taking bold action to implement cost reforms for the Imaging Products Business. We also started the initiative to re-encode our management DNA by introducing a new management process based on return on equity (ROE) and return on invested capital (ROIC) performance. We also undertook the major task of optimizing operating capital, including human resources and technologies. As part of this effort, we established the Optical Engineering Division in April 217, and in June dissolved the Core Technology Division. We then formed the Research & Development Division, dedicated to R&D activities, and the Production Technology Division that oversees the Group s production strategies and product engineering. These reorganizations were aimed at reinforcing Nikon s R&D structure and streamlining production for the entire Group. Furthermore, we integrated the Microscope Solutions Business Unit into the Medical Business Development Division to form the Healthcare Business Unit. Our goal was to strengthen existing businesses and accelerate the creation and cultivation of new businesses in the healthcare, medical, and bioscience fields, which are expected to grow in the future. We also launched the Nikon Intrapreneur Program. This new program gives our employees a chance to prototype and potentially commercialize their ideas. Through these initiatives, we aspire to foster an innovative atmosphere within the organization, thereby creating business opportunities that will lead to growth. Strategies and Goals for the Fiscal Year Ending March 31, 219 The most crucial initiative will be to formulate a new mediumterm management plan for the post-restructuring era, starting in the fiscal year ending March 31, 22. This will define our midterm aspirations for the Nikon Group and formulate a growth strategy to help us achieve them. An accompanying initiative, as part of our efforts to re-encode our Management DNA, is to shift to portfolio-based management. In this process, we will redefine the roles expected of each business in order to optimally allocate resources. This will enable us to devote operating resources more efficiently and effectively into fields with potential to grow. We will also continue reinforcing our corporate governance structure. This entails further streamlining and enhancing headquarters functions, bringing transparency to both the selection of members and the fostering of candidates for senior management, and evaluating the effectiveness of the Board of Directors. Nikon Intrapreneur Program presentation 3 NIKON REPORT 218

8 Imaging Business Unit Nobuyoshi Gokyu Senior Vice President General Manager of Imaging Business Unit Overview of the Fiscal Year Ended March 31, 218 The Imaging Business Unit continued to face a shrinking camera market in the fiscal year ended March 31, 218. We therefore positioned this year as a period for strengthening our foundations to transition to a business structure capable of producing ongoing income growth. Restructuring measures were implemented accordingly. As part of these measures, we ceased operations at a manufacturing subsidiary in China, ended sales of products via the Internet in Brazil, and took other steps to cut fixed costs by reorganizing production and sales bases and optimizing head counts. In addition, we optimized development, production, and sales structures to better focus on addressing Strategies and Goals for the Fiscal Year Ending March 31, 219 In the fiscal year ending March 31, 219, we will transition from the preparatory phase of strengthening our foundations to aggressively pursue growth. Accordingly, this year will see us complete work process reforms and other restructuring measures while also developing, producing, and selling new products. We will dedicate our efforts to mirrorless cameras, an area that, despite presenting issues for the Company, is garnering attention as the driver behind the growth of the camera market. Meanwhile, initiatives pertaining to digital SLR cameras and other existing products will continue to receive attention. As for mirrorless cameras, the new Z 7 and Z 6, which pursue a new dimension in optical performance, were launched in the fiscal year ending March 31, 219. At the same time, we will cultivate an increased awareness of invested capital costs within the unit as we continue to focus efforts on high-value-added products. We thereby hope to establish a business structure capable of market changes and providing high-value-added products. Our various initiatives produced results in line with our expectations, and the earnings base of the Imaging Business Unit is stronger than it was a year ago, because of these initiatives. Due to these efforts, operating profit increased 76% year on year. Furthermore, the D85 digital SLR camera launched in September 217 has been posting favorable sales, supported by the high evaluation of customers, and has been the recipient of numerous awards in Japan and overseas. Given these successes, I feel that we were able to demonstrate the strength of Nikon. maintaining profit margins even as sales volumes decline in conjunction with the contraction of the camera market. The Imaging Products Business is a major business generating more than 5% of Nikon s revenue and is thus the source of our brand power. All of us at the Imaging Business Unit are committed to growing by cultivating new demand through the provision of products and imaging experiences that are distinctly Nikon. BUSINESS PERFORMANCE Digital SLR camera D85 Mirrorless camera Z 7 Compact digital camera COOLPIX P1 NIKON REPORT

9 Overview of Divisions and Business Units FPD Lithography Business Unit Kiyoyuki Muramatsu Senior Vice President General Manager of FPD Lithography Business Unit Overview of the Fiscal Year Ended March 31, 218 Brisk capital expenditures by customers were seen throughout the fiscal year ended March 31, 218, amid the trend toward larger TVs and increased demand for organic light-emitting diode (OLED) panels. Although sales volumes did not reach last fiscal year s levels, we still found ourselves doing a lot of business, with the driving force behind our success being equipment capable of producing generation 1.5 plate size and larger panels. This fiscal year also saw us investing in production bases to bolster production capacity and ensure we can meet the robust demand. Also, we launched two systems that are compatible with generation 1.5 plate sizes: the FX-13SH and the FX-13S. These systems are ideal for mass production of LCD panels for use in 4K TVs; 8K TVs, which are expected to become more widespread; and high-definition tablets as well as for OLED panels. We made smooth progress in developing, producing, transporting, and installing these systems, and were able to achieve our target of selling three units during the fiscal year ended March 31, 218. As for systems for small and mediumsized panels, we developed a platform that is compatible with larger and higher-definition OLED panels. Strategies and Goals for the Fiscal Year Ending March 31, 219 In the fiscal year ending March 31, 219, the market for FPD lithography systems is anticipated to enjoy growth in demand for systems for large panels in China and other areas. In light of this demand, Nikon will adopt a strategy of boosting the competitiveness of its systems to secure a wider range of earnings sources. For large panel systems, our focus will be on achieving stable production and improving the overall quality of systems for generation 1.5 plate sizes. With regard to small and medium-sized panel systems, we will proceed with the development of highdefinition, high-productivity systems for use in mass production of OLED panels. We expect to sell 18 systems for generation 1.5 plate sizes in the fiscal year ending March 31, 219, a substantial increase over the previous fiscal year. As always, delivering products to customers as promised will be our top priority. To ensure that the promises we have made are kept, we will advance delivery plans through close coordination between relevant divisions and representatives. Furthermore, we will continue to create and deliver new value that is desirable to customers in order to guarantee a stable revenue base even in the midst of a maturing market for new FPD lithography systems. FPD lithography system FX-13S FPD lithography system FX-68S 32 NIKON REPORT 218

10 Semiconductor Lithography Business Unit Toshikazu Umatate Senior Vice President General Manager of Semiconductor Lithography Business Unit Overview of the Fiscal Year Ended March 31, 218 In the fiscal year ended March 31, 218, the Semiconductor Lithography Business adopted operating policies focused on efficiency and profit as dictated by the policies of the restructuring. Accordingly, we sought to optimize head counts, to cut R&D expenses by reducing the scope of development projects that will be pursued, and to rationalize inventories. These efforts produced results in line with our expectations. Meanwhile, the benefits of reforms implemented prior to the start of the restructuring, such as the advance toward a profit-focused sales Strategies and Goals for the Fiscal Year Ending March 31, 219 In the fiscal year ending March 31, 219, we will look to grow sales volumes by seizing upon robust capital expenditure demand. We will also enter Phase 3 of the restructuring, which will entail reorganizing our production system primarily through the reexamination of the roles of the Semiconductor Lithography Business s Production Management Division and those of Tochigi Nikon Precision Co., Ltd. As another task during Phase 3, we aim to boost production efficiency and quality while stabilizing earnings. As the Internet of Things becomes more commonplace, the means of use for semiconductors are growing more diverse. In response to this trend, we will work to expand service operations allowing customers to repurpose their existing Nikon systems through upgrades that involve replacing projection lenses or stages. At the same time, we are focused on starting up new businesses in order to strengthen our operating foundation structure, began making contributions to performance. These results combined with the profit generated through services and the resale of used equipment enabled us to break even, a goal that we were committed to accomplishing no matter what. We also moved forward with work process reforms, and we have been able to confirm that, as a result of these reforms, our ability to monitor the process of starting manufacturing of new products in real-time and respond to unforeseen circumstances has grown stronger. going forward. For example, we have launched the Litho Booster alignment station and are currently moving ahead with the development of a new optical processing machine. I would say that semiconductor lithography systems are the products among Nikon s portfolio that make most use of the Company s core competencies, namely, its opto-electronics and precision technologies. Recognizing this fact, those of us in the Semiconductor Lithography Business plan to involve ourselves in the projects of other businesses to an even greater extent to promote the use of the technologies and expertise we have accumulated thus far in new fields and thereby maximize the value of these strengths. BUSINESS PERFORMANCE ArF immersion scanner NSR-S631E ArF scanner NSR-S322F NIKON REPORT

11 Overview of Divisions and Business Units Healthcare Business Unit Masato Hamatani Corporate Vice President General Manager of Healthcare Business Unit Overview of the Fiscal Year Ended March 31, 218 In June 217, the Healthcare Business Unit was created through the consolidation of the former Microscope Solutions Business Unit and the former Medical Business Development Division. The Healthcare Business Unit is expected to become a major driver of Nikon s future growth through the expansion of its existing operations and the creation of new businesses. Hoping to live up to this expectation, we are concentrating on the development and commercialization of innovations in the regenerative medicine field and the ophthalmological diagnosis field, both fields in which we can utilize the microscope technologies we have honed over the course of a century. Specific initiatives include the development of a cell quality and culture process evaluation system for the regenerative medicine field. This system combines the cell culture evaluation expertise of customers with the Nikon Group s cell observation and image analysis technologies to provide indicators and methods for quantitatively evaluating cell quality and culture processes. In addition, we commenced strategic business cooperation with Berkeley Lights, Inc., in 216. As part of this cooperation, we began exclusive sales in Japan of Berkeley s Beacon * 1 platform, a revolutionary multipurpose cell research and development platform, in January 218. We were also able to expand the range of solutions offered by Nikon. Meanwhile, we commenced operation of the cell cultivation facilities that are part of the contract cell manufacturing business in Japan conducted through a partnership between Lonza, a major global regenerative medicine cell manufacturer, and subsidiary Nikon CeLL innovation Co., Ltd. In the ophthalmological diagnosis field, we are making smooth progress with regard to the machine learning-powered retinal diagnostic imaging system development project being advanced by Optos Plc and Verily Life Sciences LLC. Strategies and Goals for the Fiscal Year Ending March 31, 219 Nikon CeLL innovation has already received orders and commenced full-fledged production. One order came from U.S. biotechnology company Athersys, Inc., which contracted Nikon CeLL innovation to produce regenerative medicine products using somatic stem cells. In addition, Advanced Cell Technology and Engineering Ltd. has reached out to our subsidiary for development and manufacturing services for the creation of a clinical-use master cell bank* 2 to be utilized for regenerative medicine products derived from dental pulp cells.* 3 Furthermore, a development contract from Yumanity Therapeutics, Inc., of the United States has also been secured. This contract will entail using the BioStation CT, a cell culture observation system that utilizes live cell imaging technology,* 4 in the development of a drug discovery assay* 5 system. We hope to rapidly launch and promptly expand a business utilizing this system. Looking ahead, the Healthcare Business Unit will move forward with the integration of the organizations and operations of its two predecessors as it aggressively develops existing and new businesses with an emphasis on speed. Investments and other measures will be taken to acquire technologies promising to drive income growth, and we will also introduce high-value-added products and explore new demand in existing businesses. Super resolution microscope N-SIM S *1 Beacon is a registered trademark or trade name of Berkeley Lights, Inc., in the United States and other countries. *2 Master cell bank: Source cells, which can be base cells for manufacturing regenerative medicine products, that are grown for a minimum designated number of generations, then divided into multiple ampoules. *3 Dental pulp cell: Cells protected by hard tissue known as dentition, including stem cells of the nervous system. *4 Live cell imaging technology: A method to visualize and observe the functions and the gene expression of living cells. *5 Assay development: In order to investigate whether compounds can be a drug, construct an evaluation system that reproduces cell or organ reactions in artificial environments such as a test tube. 34 NIKON REPORT 218

12 Industrial Metrology Business Unit Tomohide Hamada Senior Vice President General Manager of Industrial Metrology Business Unit Overview of the Fiscal Year Ended March 31, 218 The Industrial Metrology Business Unit was successful in growing sales, primarily of X-ray and CT inspection systems and CNC video measuring systems in the fiscal year ended March 31, 218. In addition, we strategically reviewed our product lineup to strengthen portfolio management. As a result, we decided to sell our CMM (Coordinate Measuring Machine) business, which included development, manufacturing, sales, and service operations pertaining to CMM. The transfer of these operations to Italy s ASF Metrology s.r.l. was completed within a short period of time. During the fiscal year under review, we also set up two Strategies and Goals for the Fiscal Year Ending March 31, 219 As a short-term goal, the Industrial Metrology Business Unit will continue to increase its earnings power by growing sales of its strong-performing X-ray and CT inspection systems. Our medium-term goal will be to develop a solution proposal-based business with a lineup centered on non-destructive inspection and non-contact sensor 3D metrology systems, which are expected to see higher demand from a wide range of industries. By developing this business, we will accurately respond to market needs and thereby achieve ongoing growth. The Industrial Metrology Business Unit has a wide range of products and serves customers in various industries and regions. Previously, we had devoted our resources equally to each product line, customer, and region. Going forward, however, we will demonstration facilities for non-destructive inspection and noncontact sensor 3D metrology systems. In June 217, we opened a facility in India (Bangalore), a country where numerous automotive manufacturers have been setting up businesses, while we established the other facility near Nikon s Yokohama Plant in October 217. Together with existing facilities in Indonesia, Thailand, and other locations, these new facilities will provide customers in Japan and Asia with opportunities to experience the capabilities of Nikon products. We will be utilizing these facilities to increase presence of Nikon products boasting world-leading performance, and to stimulate demand for these products. adopt a strategy of selection and concentration by assessing our technological advantages and market potential. Those product segments in which we can anticipate growth will be allocated greater resources. As a reflection of this new policy, we completed a substantial reorganization in April 218. Furthermore, we will seek to cultivate an organizational culture in which domestic and overseas Nikon employees actively communicate with each other to drive business activities as a united team. BUSINESS PERFORMANCE CNC video measuring system NEXIV VMZ-H33 X-ray / CT inspection system XT H 45 Automated, non-contact large volume inspection system Laser Radar MV331 NIKON REPORT